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The dynamics of UK and US inflation expectations

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  • Gefang, Deborah
  • Koop, Gary
  • Potter, Simon M.

Abstract

The relationship between short term and long term inflation expectations in the US and the UK is investigated with a focus on inflation pass through (i.e. how changes in short term expectations affect long term expectations). An econometric methodology is used which allows for the uncovering of the relationship between inflation pass through and various explanatory variables. Empirical results are related to theoretical models of anchored, contained and unmoored inflation expectations. For neither country are anchored or unmoored inflation expectations found. For the US, contained inflation expectations are found. For the UK, empirical findings are not consistent with the specific model of contained inflation expectations presented here, but are consistent with a broader view of expectations being constrained by the existence of an inflation target.

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Bibliographic Info

Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

Volume (Year): 56 (2012)
Issue (Month): 11 ()
Pages: 3120-3133

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Handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3120-3133

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Related research

Keywords: Bayesian; Smoothly mixing regressions model; Inflation pass through;

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References

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  1. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers 11538, National Bureau of Economic Research, Inc.
  2. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, 02.
  3. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  4. G├╝rkaynak, Refet S. & Levin, Andrew & Swanson, Eric T, 2006. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the US, UK and Sweden," CEPR Discussion Papers 5808, C.E.P.R. Discussion Papers.
  5. Todd E. Clark & Taeyoung Doh, 2011. "A Bayesian evaluation of alternative models of trend inflation," Working Paper 1134, Federal Reserve Bank of Cleveland.
  6. Todd E. Clark & Stephen J. Terry, 2010. "Time Variation in the Inflation Passthrough of Energy Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1419-1433, October.
  7. Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
  8. Jon Faust & Dale W. Henderson, 2004. "Is inflation targeting best-practice monetary policy?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 117-144.
  9. Geweke, John & Keane, Michael, 2007. "Smoothly mixing regressions," Journal of Econometrics, Elsevier, vol. 138(1), pages 252-290, May.
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Citations

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Cited by:
  1. Nyberg , Henri & Saikkonen, Pentti, 2012. "Forecasting with a noncausal VAR model," Research Discussion Papers 33/2012, Bank of Finland.
  2. Till Strohsal & Lars Winkelmann, 2012. "Assessing the Anchoring of Inflation Expectations," SFB 649 Discussion Papers SFB649DP2012-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. J. Easaw & R. Golinelli & M. Malgarini, 2012. "Do Households Anchor their Inflation Expectations? Theory and Evidence from a Household Survey," Working Papers wp842, Dipartimento Scienze Economiche, Universita' di Bologna.

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